Tuesday, August 08, 2017

Wednesday Watch

Evening Headlines
  • China Is Taking on the ‘Original Sin’ of Its Mountain of Debt. China’s much-vaunted campaign to tackle its leverage problem has captured headlines this year. But to understand why they’re taking on the challenge -- and the threat it could pose to the world’s second-largest economy -- you need to dig into the mountain. Characterized in state media as the “original sin” of China’s financial system, leverage has swelled over the past decade -- partly because policy makers were trying to cushion a slowdown in growth from the old normal of 10 percent plus. What’s fueled the leverage has been a rapid expansion in household and corporate wealth looking for higher returns in a system where bank interest rates have been held down. The unprecedented stimulus unleashed since 2008 effectively brought to life the “monster” China’s leadership is now trying to tackle, says Andrew Collier, managing director of Orient Capital Research Ltd. in Hong Kong and author of “Shadow Banking and the Rise of Capitalism in China.”
  • Stocks Fall on Trump Threat as Haven Assets Climb. Volatility gauges from the U.S. to Japan rose after Trump said further threats from the country would be met with “fire and fury.” His comments followed a report in the Washington Post, citing a Defense Intelligence Agency analysis, that Pyongyang successfully developed a miniaturized nuclear warhead that could fit onto its missiles. North Korea said it’s examining an operational plan for firing a ballistic missile toward Guam. Crude dipped below $49 a barrel. Japan’s Topix index fell 0.4 percent and South Korea’s Kospi index slipped 0.6 percent. Australia’s S&P/ASX 200 Index was little changed.
Wall Street Journal:
  • Who Ultimately Pays for Corporate Taxes? The Answer May Color the Republican Overhaul. Investors and workers bear tax burdens, but the politics of tax-code changes hinge on which group carries the heavier load.
Zero Hedge:
Business Insider: 
Night Trading 
  • Asian equity indices are -.50% to +.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 80.25 +.5 basis point
  • Asia Pacific Sovereign CDS Index 19.25 +.5 basis point.
  • Bloomberg Emerging Markets Currency Index 73.70 -.05%.
  • S&P 500 futures -.33%.
  • NASDAQ 100 futures -.45%.
Morning Preview Links

Earnings of Note

  • (MYL)/1.16
  • (ODP)/.08
  • (SINA)/.62
  • (SSYS)/.08
  • (WB)/.36
  • (WEN)/.13
  • (WWW)/.29
  • (AGU)/4.03
  • (CBI)/.91
  • (JACK)/1.05
  • (NTES)/4.02
Economic Releases 
8:30 am EST
  • Preliminary 2Q Non-Farm Productivity is estimated to rise +.7% versus unch. in 1Q.
  • Preliminary 2Q Unit Labor Costs are estimated to rise +1.1% versus a +2.2% gain in 1Q.
10:00 am EST
  • Wholesale Trade Sales MoM for June is estimated unch. versus a -.5% decline in May.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,373,450 barrels versus a -1,527,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,563,820 barrels versus a -2,517,000 barrel decline the prior week. Distillate supplies are estimated to fall by -837,000 barrels versus a -150,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.31% versus a +1.1% gain prior. 
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Evans speaking, Japan GDP report, China CPI report, $23B 10Y T-Note auction, weekly MBA Mortgage Applications report and the Canaccord Growth Conference could also impact trading today.
BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and maintain losses into the afternoon.  The Portfolio is 75% net long heading into the day.

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